<div id="readability-page-1"><div><div><p>Author: Vaidik Mandloi; Source: TokenDispatch; Compiled by: Shaw, Jinse Finance</p><p>Just before last week, if you asked ten lawyers whether Ethereum was a security or a commodity, you would get as many as twelve different answers, and end up with a $50,000 consultation bill. This has always been the reality for those doing business in the crypto industry in the United States.</p><p>Regulatory agencies have been slow to issue clear rules, but afterwards they use post-hoc interpretations of standards to initiate lawsuits on the grounds of non-compliance, leaving the entire industry in a predicament of having no clear guidelines to follow.</p><p>During Gary Gensler's tenure as head of the U.S. Securities and Exchange Commission (SEC), the agency initiated 88 enforcement actions against crypto projects, 92% of which stemmed from violations related to failure to complete registration.</p><p>In other words, many companies are being penalized simply for failing to complete compliance registration within a regulatory framework that has never been clearly defined by the authorities. This practice is utterly absurd, and everyone in the industry knows it, yet is powerless to change it – the only way to escape this situation is to withdraw from the US market. However, last Wednesday, the situation took a turn when the US Senate Banking Committee passed the Clarity Act with a vote of 15 to 9. Senator Elizabeth Warren stated that the bill completely undermines the securities law system established since 1929. She is half right: while the bill incorporated input from various industry stakeholders, this kind of reasonable institutional breakthrough should have been implemented years ago. What substantive changes has the CLARITY Act brought? It establishes a workable standard for determining whether tokens are securities or commodities, a core point of contention. All tokens are initially classified as securities by default. Once a project raises funds by selling tokens and promises to use those funds for project development, it constitutes an investment contract under the Howie Act, directly falling under the SEC's regulatory scope. This rule has existed since the rise of cryptocurrency fundraising models and has remained unchanged. The real breakthrough of the new rule is that projects now have a compliant pathway to classification. The bill formally establishes standards for determining a mature blockchain: If a public blockchain meets the requirements of open-source operation, operates according to established transparent rules, and no individual or single group holds more than 20% of the total token supply, the project can submit an application to the SEC to prove that it has met sufficient decentralization standards and undergo review. If the SEC does not raise any objections within 60 days, the token can be reclassified as a digital commodity, and regulatory jurisdiction will be transferred from the SEC to the Commodity Futures Trading Commission (CFTC). The transfer of regulatory jurisdiction from the SEC to the CFTC is significant, as the two agencies have drastically different regulatory models. The SEC regulates tokens like stocks, requiring full registration, detailed disclosure, and continuous financial reporting. The CFTC, on the other hand, treats tokens like commodities such as crude oil and wheat, with more lenient regulations and lower compliance costs. Its core responsibility is to maintain fair market operation, not to restrict market participants. Any project that passes decentralized auditing will see a significant reduction in daily compliance operating costs. The project has a four-year transition period to complete its transformation. The team can submit a statement to the SEC indicating its plan to achieve mature blockchain standards within four years; as long as decentralization is steadily advanced, it can enjoy temporary regulatory exemptions. However, if the decentralization requirements are not met by the end of the four-year period, the exemption will be immediately revoked, and the project will be subject to full securities law regulation, with stricter disclosure requirements than in the initial stage. Combined with the GENIUS Act, which was formally enacted last year, the US has established a complete regulatory system for digital assets for the first time: stablecoins have clear regulations regarding reserve assets, operating licenses, and issuing entities; various tokens also have clear criteria for being regulated by the SEC or CFTC, with the core threshold being the 20% token holding concentration limit. The real issue worth exploring is the impact of this new regulation on existing projects and newly issued tokens. The grassroots project issuance model is no longer possible. Leading mainstream crypto assets will pass this review without any difficulty. Bitcoin does not have any single entity holding nearly 20% of the shares and has been considered a commodity for many years; Ethereum, after its merger, has over 1.07 million validator nodes, making it the most decentralized ecosystem in terms of infrastructure distribution among all smart contract public chains. In a joint announcement released in March 2026, the SEC and CFTC officially classified 18 tokens as digital commodities, including Bitcoin, Ethereum, Solana, XRP, Cardano, Chainlink, and Avalanche. Investors holding these assets can rest assured, as their regulatory classification has been finalized and they clearly fall under the category of commodities. However, projects outside this list face a difficult situation. Take Solana as an example. Although it's listed as a commodity, it remains in a regulatory gray area. Its current classification relies solely on industry interpretations issued by regulatory agencies. These interpretations are essentially official interpretations of existing laws by two regulatory bodies, possessing market influence and capable of affecting price movements, but lacking formal legislative effect. The next chairman of the Securities and Futures Commission (SFC) could directly issue a new interpretation document, bypassing parliamentary review and voting, and overturn Solana's commodity regulatory classification overnight. Startups that haven't yet issued tokens need to be especially vigilant. According to this bill, all newly issued tokens are automatically classified as securities from their inception. To escape securities regulation, they must consistently submit disclosure materials, legal documents, and semi-annual operational reports to the SFC, while steadily achieving decentralized maturity standards. The Hiro Systems project once attempted to complete the current full registration process of the Securities and Exchange Commission (SEC), incurring over $15 million in expenses for compliance operations and legal recourse alone—even exceeding its total fundraising amount. This clearly demonstrates the true compliance costs under the new regulations. While the legislation stipulates that projects can enjoy an exemption of up to $50 million in fundraising during the ecosystem's maturation transition period, the comprehensive compliance system required to adapt to this exemption is extremely costly. In reality, only project teams with venture capital funding and dedicated law firms can afford it. This means that small startups lacking institutional capital support will find it almost impossible to pass this review standard. The grassroots issuance model of Ethereum in 2014—characterized by widespread participation, community-driven initiatives, and $18 million in fundraising without regulatory intervention—has become illegal under this new regulatory framework and is no longer viable. The near-miss of the DeFi safe harbor: While the rules governing token commodities and the standards for determining decentralization have dominated public discourse, the safe harbor provisions in Sections 309 and 409 of the bill, specifically targeting decentralized finance (DeFi) developers, are perhaps the most crucial element of the entire bill. The bill explicitly stipulates that entities writing smart contract code, running validator nodes, and developing self-custodied wallets are not financial intermediaries, do not require brokerage qualifications, and are not considered currency transfer service providers; regulatory authorities cannot hold them accountable for such status. The principle that code itself is not equivalent to asset custody has now been formally enshrined in the bill. This favorable provision originated from the Roman Storm case. Storm developed Tornado Cash, a privacy-focused coin mixing tool for the Ethereum ecosystem. He himself does not manage any user funds, cannot freeze or reverse transactions, and even has no subjective right to shut down the protocol. The project's code is open-source and runs autonomously. However, the US government still convicted him in August 2025 of operating a money transfer business without a license. The root cause is that at that time, there were no legal provisions clearly distinguishing between software development and money transfer operations. However, this industry protection clause still has significant loopholes. During the committee's vote, a temporary amendment revised the wording of the clause, defining the situations where developers still need to be subject to regulation: if the actor effectively controls the operation of the protocol through agreements, cooperation arrangements, or private consensus, they will no longer enjoy safe harbor protection. This means that in protocols like Aave and Compound, token holders who regularly participate in ecosystem upgrade proposals and treasury funding decisions are highly likely to be deemed to have entered into the aforementioned &#34;cooperation arrangements.&#34; Based on this alone, all businesses developing based on these protocols would directly lose their eligibility for compliance protection. Safe Harbor only covers the backend underlying architecture, smart contracts, validator nodes, and node operators; it does not define the front-end interface. Ordinary users almost never directly call the original smart contracts to operate DeFi, mostly relying on official web front-ends like Uniswap and Aave for transactions. If regulators determine that operating such front-end pages constitutes conducting financial services, then Safe Harbor can only protect the underlying code but cannot cover the actual application products used by users. This could become the trigger for the next major regulatory battle in the DeFi field. Jake Chervinsky, head of the Hyperliquid Policy Center, bluntly stated, &#34;If this bill cannot adapt to the decentralized finance ecosystem, then it loses its meaning.&#34; Indeed, without amendments to the existing provisions, the safe harbor only protects developers' rights on paper, and still harbors significant compliance risks in real-world applications. Furthermore, Warren proposed an amendment to grant the U.S. Treasury Department the authority to sanction DeFi protocols, replicating the regulatory approach taken in 2022 when Tornado Cash was banned. Ultimately, the amendment failed to pass with 11 votes in favor and 13 against, with all Republican members voting against it. Currently, whether regulators can legally impose sanctions on open-source software without a controlling entity remains unclear, and this controversy will inevitably lead to legal proceedings. At that time, legal teams defending DeFi protocols can cite this vote result as strong evidence: Congress has fully debated this issue and explicitly rejected the proposal to grant the Treasury Department this sanctioning power. This vote result, stemming from a failed amendment, will become an important legal basis for industry rights protection. The biggest beneficiary of this bill is actually traditional banking institutions. The Clarity Act officially repeals SAB 121 accounting standards, abolishing the previous mandatory requirement for financial institutions to include customers' crypto assets in their balance sheet liabilities. This accounting standard was the core barrier that has long prevented traditional banks from entering the crypto asset custody field. Now, major financial institutions can legally hold assets such as Bitcoin and Ethereum without disrupting their capital adequacy ratios. Institutional custody platforms like BitGo and Anchorage have finally broken free from the limitations of simple asset storage and are now able to formally expand into high-end financial services such as institutional brokerage and clearing, based on comprehensive legal grounds. The asset tokenization sector is also poised to see its market potential materialize. Industry estimates for the tokenized asset market size by 2030 range widely, between $2 trillion and $30 trillion. Previously, this trillion-dollar market size had failed to materialize due to a lack of compliant trading channels. The Clarity Act completely removes this industry obstacle, building a legal bridge connecting traditional institutional capital with the on-chain asset market and breaking down the core barriers to capital inflow. The most noteworthy shift lies in the synergistic effect between this bill and the GENIUS Act. Stablecoin regulations explicitly prohibit passive income generation through holdings; investors can no longer simply deposit USDC on exchanges and wait for a 5% annualized return. Now, to earn returns, active participation in the ecosystem is required, such as staking tokens, participating in on-chain governance, or providing liquidity. This means that hundreds of billions of dollars that were previously idle are now flowing into standardized DeFi protocols such as Pendle, Morpho, and Maple Finance. Legislators did not intend to drive a massive influx of funds into the DeFi market, but by banning risk-free passive token holding returns, they ultimately facilitated this capital migration. Compared to the regulatory chaos of the past decade, the CLARITY Act represents significant progress. Previously, the industry was mired in legal ambiguity, with regulators relying on litigation rather than clear rules to control the crypto market. However, it's undeniable that this act reveals the vested interests of established industry giants, with its drafting clearly evident. High compliance costs, a four-year transition period for ecosystem maturation, and the entire legal framework required to enjoy regulatory exemptions all favor well-funded, established projects with professional legal teams. For leading platforms like Coinbase, this regulatory framework is the ideal rule they have been seeking; however, for emerging startups, the relevant clauses were finalized before they entered the market, leaving them with no say. However, this has always been the case with regulation. Whether the crypto industry should ultimately develop in this way remains to be seen.</p></div></div></div>

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<p>The US Senate Banking Committee passed the CLARITY Act, establishing a standard for classifying tokens as securities or commodities. Tokens are initially classified as securities but can be reclassified as digital commodities if they meet decentralization criteria. This shift transfers regulatory oversight from the SEC to the CFTC, reducing compliance costs for projects. The act aims to clarify regulations for digital assets, impacting existing and new projects in the crypto industry.</p>

- The U.S. Senate Banking Committee recently passed the Clarity Act, which establishes a standard for classifying tokens as either securities or commodities.  
- The legislation allows tokens to be classified as digital commodities if they meet specific decentralization criteria, thereby transferring regulatory oversight from the SEC to the CFTC.  
- While the act aims to provide clarity and reduce compliance costs for established projects, it raises concerns about the viability of emerging startups and may reinforce the dominance of industry giants.

The Challenges Under the CLARITY Act: Decentralized Testing of Tokens